Tezos

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What Is Tezos?

The Tezos blockchain is an open-source network with a unique governance model that allows stakeholders to participate in decision-making, including voting for system updates actively. Its primary objective is to provide a self-amending blockchain platform where stakeholders govern and upgrade the network through on-chain governance.

The project was initiated in 2014 by Arthur and Kathleen Breitman, and the mainnet was launched in 2018. The name is derived from the ancient Greek word 'τεζω,' meaning 'to make smart contracts.' It operates on a Proof of Stake (PoS) mechanism, empowering investors with the right to vote.

What Is Tezos?

Tezos is a blockchain technology that allows stakeholders to invest and gain voting rights in their ecosystem for significant system upgrades.
Arthur and Kathleen Breitman coded this blockchain in September 2014.
When multiple bakers (validators) verify blocks at the same height, any stakeholder can submit evidence of this simultaneous validation and earn a reward.
The accused validator may face the loss of their security deposit in this process, which is commonly known as baking. The native cryptocurrency of Tezos is XTZ, and it operates on the Liquid Proof of Stake (LPoS) algorithm.

Tezos Explained

Tezos is a cryptocurrency blockchain network that facilitates peer-to-peer transactions through smart contracts emphasizing environmental sustainability. It operates on a Delegated Proof of Stake (DPoS) mechanism, where investors holding XTZ coins can participate in governance by delegating their tokens to validators, also known as bakers. Additionally, Tezos allows the hosting of decentralized applications (dApps).

The blockchain comprises two main components: the Network Protocol and the Network Shell. The Network Protocol collects stakeholder votes on proposed upgrades and submits them to the shell, which authorizes transactions, manages core operations, and updates nodes based on consensus.

Validators on the Tezos network, bakers, must hold at least 8,000 XTZ to participate. Bakers must complete specific cycles to earn Tez coins, with one cycle lasting approximately 2.8 days and consisting of 4,096 blocks. Rewards are distributed over several cycles, and the process is governed by a random seed derived from stakeholder input.

It employs a mechanism to penalize double baking, reducing the risk of forks and orphan blocks. In cases of double baking, the accused may lose a portion of their security deposit, with the remainder rewarded to the accuser, thereby maintaining network security.

History

The history of this blockchain network is marked by significant events that have shaped its development. In 2014, software engineer Arthur Breitman, a quantitative analyst at Morgan Stanley, authored the Tezos whitepaper under his real name. The whitepaper highlighted limitations in Bitcoin's protocols and upgrade mechanisms and aimed to address these issues.

In 2015, Arthur Breitman and other individuals established Dynamic Ledger Solutions (DLS) Inc. The primary objective of DLS was to develop the initial code for the blockchain. As part of the Tezos project proposal, users could receive tokens with voting power per coin.

In July 2017, this blockchain conducted an initial coin offering (ICO) that raised $232 million in just two weeks. Investors were able to contribute Bitcoin and Ethereum to the ICO, resulting in the acquisition of 66,000 BTC and 361,000 ETH. This ICO was one of the largest in history, both in terms of funds raised and fundraising speed.

It was established after the ICO, with Johann Gevers as its president. A dispute arose between the founders and Johann Gevers, leading to delays in distributing XTZ coins. The dispute was resolved in mid-February 2018 when Gevers and others left their positions.

The Tezos mainnet was eventually launched in September 2018, with the original launch date initially planned for early 2017. Before the mainnet launch, the Tezos testnet, or betanet, was introduced in June 2018, allowing testing and preparation for the mainnet release.

Examples

Let us look at the examples to comprehend the concept in the simplest way possible.

Example #1

Suppose Kevin is an experienced software engineer in the gaming industry. Recently, he diversified his investment portfolio by acquiring Tezos tokens, granting him voting rights and access to DeFi applications within the ecosystem. After voting for implementing a gaming structure and achieving consensus without any disruptive forks or orphans, the blockchain experienced a price surge.

Impressed by its stability, Kevin recommended it to his corporate leadership. Subsequently, the gaming firm's board discussed and finalized plans to build on the Tezos blockchain, attracting other companies and contributing to the growth of Tezos' value.

Example #2

In a series of strategic moves, Tezos, the blockchain technology firm, has recently solidified vital partnerships to expand its reach and enhance user experiences. As of June 2023, Tezos has joined forces with Blockbank, a cutting-edge fintech solution provider. This collaboration is poised to benefit its users significantly, as XTZ coins are set to be listed on the Blockbank exchange. This move will enable Tezos enthusiasts to seamlessly trade XTZ within Blockbank's centralized finance (CeFi) wallet, streamlining the management of digital assets and fostering a more convenient user experience.

Moreover, it has forged another pivotal alliance with Google Cloud. This partnership aims to simplify the process of becoming network validators, known as bakers, for all Google Cloud customers. By becoming a baker, Google Cloud joins the ranks of established bakers like Ubisoft, thus strengthening Tezos' proof-of-stake mechanism and advancing its network capabilities. This collaboration is expected to drive institutional and B2B adoption of this blockchain technology.

Additionally, it has integrated its decentralized finance (DeFi) applications with MetaMask Wallet, offering users an enhanced and user-friendly interface for DeFi activities. These partnerships underscore Tezos' commitment to innovation, accessibility, and user-centric solutions in the rapidly evolving landscape of blockchain technology.

Pros And Cons

This blockchain network has many incentives to provide for investors but has certain disadvantages. Let us look at them:

Pros	Cons
It avoids the formation of hard forks on the blockchain.	The waiting time for the token distribution is very long compared to other blockchain.
Every stakeholder has an equal voting right in the protocol upgrade.	Also, this blockchain technology firm is always a target of lawsuits, fights, and delays.
It consumes less energy and is cost-effective, too.	Investors may view it as a risky investment due to high wealth concentration.
It works on a self-amending mechanism to automatically update the system nodes.
Bakers receive rewards for their on-chain governance.
It provides a platform for the development of other DeFi applications.
There are multiple use cases of this blockchain.

Tezos vs Cardano vs Ethereum

Although Cardano works on the Ethereum blockchain, it differs from the Tezos network. So, let us look at their different characteristics and functions:

Basis	Tezos	Cardano	Ethereum
Meaning	A blockchain project for stakeholder voting on upgrades	Open-source network enabling DeFi apps via Plutus language	Blockchain for smart contracts and crypto trading
Objective	Eliminate hard forks, high computational power	Execute smart contracts in a decentralized economy	Execute transactions and develop DeFi projects
Developed on	September 2014	September 2017	November 2013
Founders	Arthur and Kathleen Breitman, with developers	Charles Hoskinson, former Ethereum co-founder	Vitalik Buterin, computer programmer
Consensus Mechanism	Liquid Proof of Stake (LPoS)	Ouroboros (an extended PoS)	Proof of Work (Ethereum), transitioning to PoS (Ethereum 2.0)
Native Token	XTZ (Tezos)	ADA (Cardano)	ETH (Ethereum)
Coin Development	Baking process for tokens and transactions	Staking methods for coin creation	Mining (PoW) transitioning to staking (PoS for Ethereum 2.0)

Frequently Asked Questions (FAQs)

1. What are the different voting periods in the Tezos ecosystem?

The Tezos ecosystem includes various voting periods, each lasting for 23 days. These periods are as follows:
1) Proposal Period: During this phase, bakers can submit proposals for upgrades to the Tezos network.
2) Exploration Vote Period: This phase involves proposals that have garnered more than 80% approval from stakeholders.
3) Testing Period: Proposals that advance are subjected to a 48-hour testing phase on a separate test chain.
4) Promotion Vote Period: In this stage, consensus is sought from bakers to move a proposal forward.
5) Adoption Period: The approved upgrade is implemented across all system nodes.

2. Does Tezos run on Ethereum?

It operates independently on its blockchain and does not run on Ethereum or any other blockchain. Tezos employs a "baking" mechanism for consensus, whereas Ethereum utilizes a "staking" mechanism.

3. Does Tezos have gas fees?

Tezos utilizes a gas system with a proposed gas limit of 1,040,000 gas units (gu). If this gas limit is exceeded during contract execution, it can lead to instability in the contract and its operation.